What Is a Lot or Land Loan?
A lot or land loan finances the purchase of land without an existing structure. These loans come in three categories: raw land (no improvements), unimproved land (some improvements but not buildable-ready), and improved lots (utilities, roads, and survey in place). Each carries different risk profiles and loan terms.
Land loans are harder to get than home loans because there is no structure for collateral. Down payments range from 15% for improved lots to 50% for raw land. Terms are typically shorter (5-20 years) and rates are higher than residential mortgages.
The construction pathway: If you plan to build within 12 months, a construction-to-permanent loan may be better than a land loan because it rolls the land purchase and construction into one transaction with better terms.
Who Land Loans Are For
- Future homebuilders securing land before construction
- Investors holding land for appreciation
- Developers purchasing lots for spec or build-to-rent projects
- Agricultural or recreational land buyers
Key Features
Improved lot loans: 15-25% down, rates 1-2% above residential, terms up to 20 years. Raw land: 30-50% down, shorter terms, higher rates. SBA 504 loans can finance land for owner-occupied commercial builds. USDA offers rural land loans in eligible areas.